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The Patent Exhaustion Doctrine and the Bilateral Effects on the American-Vietnamese Marketplace

On 30 May 2017, the United States Supreme Court released an important decision on Impression Products, Inc. v. Lexmark International, Inc., which provided clarification on whether a producer of a patent could impose further restrictions on the alienation of a product beyond the initial sale.1 On behalf of the majority of the Court, Chief Justice John Roberts stated that when a patent owner commissions the sale of a product, the completion of the sale extinguishes the patent rights of the patent owner. In other words, patent owners are unable to enforce express conditions or restrictions beyond the initial product sale as their pre-existing patent rights are said to have been "exhausted." This has important implications on the American-Vietnamese marketplace, as Vietnamese products imported into the United States will now be subject to the patent exhaustion doctrine. Overview of the Facts of the Dispute Lexmark is a company in the United States that designs, manufactures, and commissions the sale of ink cartridges to consumers globally. The sale of the ink cartridges is based primarily on two sales models: a buyer can either buy ink cartridges at full price, or buy the ink cartridges at a reduced rate provided the buyer sign a contract which imposes a single use restriction on the ink cartridge, and grants Lexmark the exclusive right to provide cartridge refills. The dispute here arose when Impression Products acquired empty products through third party consumers of Lexmark and refilled and resold them at a lower price point. Chief Justice John Roberts, writing on behalf of a 7-1 majority, stated that no express conditions based on patent rights can exist after the point of sale due to the doctrine of patent exhaustion. The Court goes on to comment that a foreign sale will also trigger the doctrine of patent exhaustion, as any restriction on the alienation of a product - both domestic and globally - has no basis in patent law. While conditions can still be held valid based on concepts found in contract law, the Supreme Court is clear in its ruling that restrictive conditions beyond the initial sale have no place in patent law. Implications on Numerous Business Sectors This may have burgeoning effects on several important business sectors that overlap between the United States and Vietnam. Regarding the sale and importation of high-end luxury brands, manufacturers in Vietnam may have been afforded additional protections in the resale of their products to foreign markets in the United States. In order to prevent the resale of luxury brands at a lower price point, corporations are encouraged to ensure that they rely on the more restrictive contract law rules, as companies can no longer rely on patent rights to ensure that their designs are not resold at a lower price point in other jurisdictions. In addition, the widespread sale of cheaper pharmaceuticals in Vietnam may play a role in the American pharmaceutical market. The cheaper sale of foreign, patented medicine in Vietnam can now be redistributed in the United States and can be afforded protection under the doctrine of patent exhaustion, which may create ripple effects on the price of medicine in the United States. Companies are urged to rely on the more restrictive tenants of contract law in such scenarios to ensure that the second-hand resale of products will not undercut the primary market of pharmaceuticals.